Asymmetric competition among nation states: A differential game approach
Yutao Han (yutao.han2014@gmail.com),
Patrice Pieretti,
Skerdilajda Zanaj and
Benteng Zou
Journal of Public Economics, 2014, vol. 119, issue C, 71-79
Abstract:
This paper analyzes the impact of foreign investments on a small country's economy in the context of international competition. To that end, we model tax and public input competition within a differential game framework between two unequally sized countries. The model accounts for the widely recognized characteristic that small states are more flexible in their political decision-making than larger countries. However, we also acknowledge that small size is associated with limited institutional capacity in the provision of public services. The model shows that the long-term outcome of international competition crucially depends on the degree of capital mobility. In particular, we show that flexibility mitigates against – but does not eliminate – the likelihood of collapse in a small economy. Finally, we note that the beneficial effect of flexibility in a small state increases with its inefficiency in providing public services and with the degree of international openness.
Keywords: Tax/public input competition; Open-loop/Markovian strategies; Differential games (search for similar items in EconPapers)
JEL-codes: H25 H73 O30 O43 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)
Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0047272714001728
Full text for ScienceDirect subscribers only
Related works:
Working Paper: Asymmetric competition among Nation States: a differential game approach (2014) 
Working Paper: Asymmetric Competition among Nation States. A differential game approach (2011) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:119:y:2014:i:c:p:71-79
DOI: 10.1016/j.jpubeco.2014.07.008
Access Statistics for this article
Journal of Public Economics is currently edited by R. Boadway and J. Poterba
More articles in Journal of Public Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu (repec@elsevier.com).